Consumer Advocates Say Merger A Bad Deal

April 07, 1998|By FRAN SILVERMAN; Consumer Affairs Writer

The proposed merger of Citicorp and Travelers Group Inc. could provide tempting one-stop shopping for financial services customers, but consumer advocates said it also could mean higher prices and fewer choices in the future.

The consumer advocates are lining up against the proposed merger, complaining that the deal could result in higher banking fees and fewer choices of financial products.

Citicorp and Travelers are eager to sell their services to each other's customers -- more than 100 million people combined.

But it is precisely those so-called ``cross sales'' that worry consumer advocates.

``Big financial conglomerates have immense information about consumers in their databases, and they could use that information in ways that could invade consumer privacy,'' said Edmund Mierzwinski, director of the U.S. Public Interest Research Group.

Consumers could benefit from the merger if the company starts bundling products and offering price breaks, such as lower automobile insurance rates if customers get their auto loans from the company.

But the advocates are concerned that consumers may enter the bank looking for an insured interest-bearing certificate of deposit and walk out with an unsecured investment instead. They also fear the availability of one product could be contingent on the purchase of another.

```Without enforceable regulations concerning the sale of these new products and services, it's too easy to use the lax environment of one-stop shopping to rip off consumers,'' said Frank Torres, legislative counsel for Consumers Union.

Consumers could benefit from offers that may come from companies hoping to take advantage of any confusion presented by the merger, observers said. But they also said consumers will suffer from less competition when Travelers and Citicorp combine services and products.

Both, for example, sell insurance. The merger would mean less competition on that front.

And, consumer advocates pointed to studies that show that larger banks charge higher fees and do not pass economies of scale savings on to consumers.

``Whether it's First Union taking over the Pennsylvania market or Nations Bank taking over the Florida market, we are seeing a concentration in the financial industry that is unprecedented. Our studies and those of the Federal Reserve [Board] show these firms are charging higher prices,'' Mierzwinski said. ``They get away with it because of marketplace power.''

Ralph Nader, head of the Center for the Study of Responsive Law, said the merger would overwhelm an already weak and disjointed regulation system and poses a risk to the deposit insurance system.

State Sen. John Fonfara, D-Hartford and co-chairman of the General Assembly's banks committee, said he planned to ask the state Senate to oppose the deal.

``With these megamergers, you have a handful of [companies] controlling the market,'' said Fonfara. ``They determine not only what services will be provided, but at what prices.''